With BTC coming back from the dump in May and multiple bottoms around ~$30k, I thought I would dive into some of the BTC mining stocks and see if there was some value to be found.
A lot of institutional funds that can't directly invest in BTC have been scooping up a series of publicly traded Bitcoin mining stocks, so I was super curious to see if they had outperformed the base asset, BTC, over the long run.
These are all listed on the Nasdaq and are:
- HVBT / HIVE
Some of my findings:
- One of the biggest challenges of being a Bitcoin miner is that it is extremely capital intensive. As the hash rate for Bitcoin grows exponentially over long periods of time, miners constantly need to shell out cash for new and faster performing machines to keep up with their competition. Thus theoretically, an acquisition of machines for one miner is a net negative for all of its competition, as it entitles them to a larger share of the daily block reward.
- Hash rate is a zero sum game. It is best to go with the leaders for hash rate because of this - as competitors will make the lesser players gradually get a smaller slice of the pie: https://www.blockchain.com/charts/hash-rate
- Compared to the price of Bitcoin, these stocks have done incredibly well - but it all depends on what your start point is. If you're measuring from January 2020, they've well outperformed the price of Bitcoin. But go further back to March 2019, and their extreme drawdowns in correlation to Bitcoin's bear markets have actually positioned them a lot worse off (MARA was the only one that outperformed, the rest dramatically underperformed BTC price).
- HUT8 is the only one that HODL's the entirety of their BTC treasury in BTC that they mined on their own - which means if "green" or "virgin" coins end up fetching a premium (I doubt they will), this company would theoretically benefit the most from that.
- HIVE/HVBT is the only company on this list that is debt-free - almost all of these companies have diluted in order to scale and expand their businesses as they do not have positive free cash flow.
- BITF is the cheapest stock in terms of market cap versus their reported hash rate.
- BITF seems to have the best setup in terms of energy - owning their own electrical company with their on-site miners and having the lowest cost per BTC production out of the five listed here. (Approx ~80% margin)
- After investigating these stocks and seeing their business models, it makes absolute sense to me that almost every ENERGY PRODUCTION company will eventually get into this sector. It is abundantly more profitable to mine BTC with cheap/excess energy than to sell that energy to the grid.
- Since mining is as simple as purchasing a few computing units, hiring a few low level engineers to set them up in a well ventilated space, hash rate should continue to rise - and this method of thinking can be multiplied to many other countries outside North America with abundant capitalization and endless energy resources.
There's a lot more to it, and I actually made and summarized it visually with some graphics and other material here:
Position: 10,000 BITF @ 4.55 USD